Small-Business Banking

Now’s a good time for small businesses to renew their relationship with banks, or start one, small-business advocates say. They cite several reasons why: 1. The economy, while still weak with stubbornly high unemployment, is beginning to gain traction, key indicators show. The U.S. Federal Reserve, the country’s central bank, recently raised its own forecasts, predicting the economy would grow 3.4 percent to 3.9 percent this year.

2. Big banks have begun to live up to their December 2009 promise to President Obama to take “extraordinary” steps to revive lending to small businesses. The promise was made at a White House meeting with top executives from the nation’s 12 biggest banks — American Express, Bank of America, Bank of New York Mellon, Capital One, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, PNC Financial, State Street Bank, U.S. Bancorp and Wells Fargo. “America’s banks received extraordinary assistance from American taxpayers to rebuild their industry,” President Obama said. “Now that they’re back on their feet, we expect an extraordinary commitment from them to help rebuild our economy,” Obama said at the time, adding, “Ultimately, in this country we rise and fall together; banks and small businesses, consumers and large corporations.” Collectively, the banks promised to take second looks at loans they had denied over the previous year. Some went further individually. Bank of America, for example, said immediately that it would increase lending to small and midsize businesses by $5 billion in 2010 over what it lent to them in 2009.

3. Money is beginning to flow from the $30 billion Small Business Lending Fund, which was enacted into law as part of the Small Business Jobs Act of 2010. The fund encourages lending to small businesses by providing capital to qualified community banks with assets of less than $10 billion. Small businesses rely on community banks and several of these banks have already applied to the fund, according to Independent Community Bankers of America.

4. In January, the White House launched a national campaign, dubbed “Startup America,” to promote entrepreneurship and private-sector investment in startups and small businesses. The initiative includes proposals to permanently eliminate capital gains taxes on key investments in small businesses, expand the New Markets Tax Credit to encourage investment in businesses operating in lower-income communities and direct $2 billion in Small Business Administration guarantee authority over the next five years.

5. Banks are looking for borrowers, according to the American Bankers Association, “Despite many headwinds, such as 116,000 business failures, 8.3 million jobs lost and 15 percent reduction in business inventories over the past two years, banks are prudently seeking borrowers,” the association said in a Jan. 11 statement titled “Banks and the Economy.” In fact, the association added, “taking into account reserves set aside for losses and the natural repayment of loans each year, banks initiated roughly $1.7 trillion in new lending over the 12 months ending September 2010.”

None of this means small businesses will have an easy ride to credit. As recently as January, Independent Community Bankers of America expressed “deep and ongoing concerns about the difficult capital and lending environment” for small businesses. “Access to capital continues to be a major concern for America’s small-business entrepreneurs. Tax policy uncertainty and a more oppressive regulatory environment have made it even more difficult to fund private-sector projects,” the group said in a Jan. 20 letter to U.S. senators.

Community bankers have repeatedly warned against overregulation, saying that while new rules are meant to curtail the risky practices that triggered the recent financial crisis, they would negatively impact community banks’ viability and lending, even though community banks did not engage in those practices.

In testimony on Capitol Hill last year, Cathleen H. Nash, president and CEO of Citizens Republic Bankcorp and a member of the board of directors of the Consumer Bankers Association, said, “Good borrowers, who have the willingness and capacity to repay, will always find a loan. Those borrowers with weaker financials will find it more difficult to meet the credit requirements of their bank.”

For all of the five reasons cited above, now’s as good a time as any for both kinds of borrowers to get close to lenders.

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